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May 8, 2013

4 Hottest Real Estate Markets for Ultrawealthy

Global wealth will grow to $150 trillion by 2017, up from $122 trillion

For $26 million you can have a bedroom overlooking Central Park, at 950 Fifth Ave.

The growing number of very wealthy individuals globally is driving demand for ultraprime residential properties in the world’s main financial centers, according to a new report.

The value of residential property purchases over $15.5 million in “old world” London and New York and “new world” Hong Kong and Singapore will grow by 27% in the next five years, according to research produced by property developer Candy & Candy, estate agent Savills and Deutsche Bank.

In 2012, some 300 residential real estate transactions worth more than $15 million took place in the four markets. All told, those transactions exceeded $10 billion.

The report predicted that the number of such transactions would grow to 400 a year by 2017, with a total value of $13 billion. It said the growth would be both organic and incremental; neighborhoods considered ultraprime will expand and new ultraprime stock will be built to expand supply.

Demand for trophy residences is being driven by increases in global wealth. The reported counted 187,380 people with assets of more than $30 million; of those, 50,000 were worth $100 million or more.

The report said that as international markets recover in the next five years, the number of ultrawealthy people would increase by 20% and global wealth would grow from about $122 trillion to $150 trillion. Already in 2012, the number of billionaires increased by more than 10%, and their wealth grew by 14%.

Much of this wealth creation is being generated in the emerging markets of Africa, central Asia, China and South Korea. Asia’s wealth creation is already growing by 11% per annum, and that of Russia, Eastern Europe and Latin America by 9% per annum.

Following are brief profiles of the prime residential market in the four markets.

New York

North America is home to more than a third of the ultrahigh-net-worth population, according to the report, and New York accounts for around one in eight in the U.S. Its top residential properties command the highest prices per square foot in the country, $13,000.

Still, New York ranks seventh globally for prime and ultraprime properties. Prices fell 1% between 2007 and 2012, according to the report. As a result, Asian and other “new world” city inhabitants view New York as a value play, especially if the American economy continues to recover. Overseas buyers have recently made several record-breaking purchases in New York, taking advantage of the weak greenback and the U.S.’s safe-haven credentials. More than 70% of ultraprime residential purchases are by non-U.S. buyers.

Cooperatives and condominiums dominate New York’s prime residential market. Condos have outperformed during the latest recovery because they are the only type of apartment building freely available to foreign buyers—and do not require the kind of financial disclosure co-ops do—and are in short supply compared with co-ops.

London

In terms of transactions worth more than $15.5 million, London is a bigger market than New York and appeals to buyers from Eastern and Western Europe, the former Soviet Union, the Middle East, north Africa and Asia. Fully 32% of its ultrahigh-net-worth population is not domiciled in the U.K.

Overseas buyers are attracted by the transparent and stable safe haven, as well as by the city’s lifestyle. Demand has contributed to price growth of 24% between 2007 and 2012. For the most expensive properties, prices are up 36% over the previous high in the third quarter of 2007.

Housing stock in the most desirable neighborhoods is shrinking as properties come under foreign ownership. The report noted that new overseas owners hold property longer than U.K. owners, reducing the availability of units that can be traded every year.

Hong Kong

Burgeoning wealth generation in Asia has had an enormous effect on price growth in the prime residential markets of Hong Kong and Singapore; property prices are increasing by more than 150% in each, according to the report.

By 2017, 50% more people will have become ultrahigh net worth in Asia than in North America.

Hong Kong is the world’s most expensive city for prime residential real estate. Its supply of ultraprime residential properties is limited and is also a must-have for newly minted, cash-rich mainland billionaires. Prices grew 39% between 2007 and 2012.

Although enormous demand at the top of the market is setting global records, recently announced punishing stamp duty levels will likely cool the enthusiasm. These are aimed in particular at overseas residents and owners who hold property for shorter periods of time.

Singapore

Singapore’s strategic location and established residential market attract buyers from all over Asia. The report said 31% of home buyers in 2011 were foreigners, double the number a decade earlier, with significant numbers of Malaysians, Indonesians and Indians attracted by a familiar language and culture. But Chinese buyers have been driving sales, their numbers tripling since 2007, as they diversify their investments abroad.

Prices grew by 94% between 2007 and 2012. Since 2005, ultraprime property has gone up 232%.

Similar to Hong Kong, Singapore has recently increased property taxes, also aimed especially at overseas buyers. This has significantly damped activity, particularly at the upper end of the market.